Buy now, pay later plans like Afterpay have become more popular, especially because people have been shopping at home more during the pandemic. But is Afterpay a good way to shop and pay online?
It can be, if you’re disciplined about paying off your purchases on time. Afterpay lets you shop and pay interest-free. So if you see something you want to buy online but your direct deposit is still a few days away, you can still make the purchase.
Again, you’d pay the first 25% upfront, then make three remaining payments of 25% each. So if you’re buying a $200 pair of shoes, you’d pay $50 at checkout. Then you’d pay $50 per week, every other week, for six weeks.
Afterpay was founded with a goal of making online shopping accessible without causing people to rack up big piles of debt. In fact, the average purchase is around $150. Bottom line, Afterpay is designed to help you get the things you need now and pay them off in a way that fits your budget.
But that doesn’t mean there aren’t some potential drawbacks. The specific situation where you can run into trouble with Afterpay (or any buy now, pay later service) is if you make more purchases than you can realistically afford to pay back.
If you’re frequently using short-term installment loans to shop online, you could be digging a debt hole for yourself. Like any debt, paying it back can be challenging, especially if you’re paying interest and fees on top of it. And too many buy now, pay later balances could negatively affect your credit.
Does Afterpay charge interest?
As mentioned, Afterpay never charges shoppers interest on their purchases. The only thing you’d pay is a late payment fee – and those are capped.
Not paying interest is an attractive alternative to using a credit card to shop. While a credit card could help you earn cash back, points, or miles on purchases, interest charges can take away their value. With Afterpay, you won’t get rewards when you spend. But you won’t get hit with steep interest charges either.
Does Afterpay affect my credit?
Afterpay doesn’t perform credit checks when approving new shoppers. Nor do they report late payments to the credit bureaus.
So, in short, Afterpay won’t hurt your credit. But it won’t help it either. So if you’re trying to build credit, you may still need to get a credit card in your name or at the very least, be added as an authorized user to someone else’s account.
